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Misleading Inferences from Panel Unit Root Tests: a Reply *
Author(s) -
Breuer Janice Boucher,
McNown Robert,
Wallace Myles
Publication year - 2006
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2006.00588.x
Subject(s) - unit root , economics , econometrics , series (stratigraphy) , focus (optics) , point (geometry) , panel data , unit (ring theory) , test (biology) , root (linguistics) , mathematics , geology , physics , philosophy , geometry , mathematics education , optics , paleontology , linguistics
Ford et al. (this issue) point out that the SURADF panel unit root test may be sensitive to panel composition. This reply shows that they overstate the case since they focus on a short time series of 44 observations. Type II errors are much more likely in this environment so that inconsistent conclusions may arise for individual panel members across differently composed panels. We demonstrate that this problem becomes much less likely when the number of time‐series observations increases.